The horror and futility of CBN cashless policy

By Nwogboji Emmanuel Usulor

Oneof the best quality any policy maker should have is the ability to conduct researches on policy factors.

Research helps to conduct a comparative analysis of potential policy pros and cons.

In this this article, I detailed the experience of two major countries that have tried full implementation of cashless policy.

1. India, EXPERIENCE FROM INDIAN’S CASHLESS POLICY, In November 2016, India introduced its demonetisation policy to remove certain high- denomination banknotes from circulation to crack down on corruption, tax evasion, and other illegal activities and push towards a digital economy.

Like Central Bank of Nigeria’s directives, cash withdrawals from ATMs were restricted to a maximum of 2,000 rupees (US$30) daily; it was later increased to 4,000 rupees (US$60).

Cash withdrawals from banks were also restricted to 10,000 rupees (US$150) daily and 20,000 rupees (US$300) weekly.

The policy made it impossible for people to access their money for a long time, resulting in many controversies and a negative economic impact.

Critics referred to it “as forcefeeding cashless transactions down the throats of such a large population.” Still, the currency in circulation continued to grow.

India’s cashless policy was unsuccessful because it did not adequately address the challenges and concerns of the country’s population.

Six years later, it is not clear by how much demonetization has brought India closer to being a cashless economy despite significant growth in digital payments. Within a year, however, the currency in circulation returned to pre-demonetization levels. Today cash usage in India is at an all-time high.

EXPERIENCE FROM SWEDEN CASHLESS POLICY, For the past 20 years, the use of paper money in Sweden has dwindled monumentally. Currently, less than 1% of its transactions are done in cash, and many banks no longer accept cash deposits.

This means that the Sweden’s central bank—Riksbank, can sufficiently account for the amount of cash in circulation. In place of cash, residents use digital wallets, credit cards, fintech apps, and other mobile money solutions. In contrast, the Central Bank of Nigeria couldn’t account for over

₦26 trillion in the country in 2021. Sweden’s adoption was largely made possible by robust Internet infrastructure, early digitization of bank accounts, cultural discrimination against cash brought about by public education, free real- time mobile transactions, and widespread adoption of card payment methods.

Records show Sweden took the first steps towards automating its banking system in the 1960s. By the mid-1990s, the number of terminals receiving card payments had increased.

In the meantime, Riksbank invested in and improved its payment settlement system, making it robust enough to encourage banks to carry out e-transactions. Four decades later, the cash in circulation had increased by 55%, even with the increasing popularity of electronic payments.

The years that followed saw banks and card companies make an effort to convince the retail economy to ditch cash payments for e-card payments; they also introduced fees for cheque withdrawals.

The 2000s saw the proliferation of mobile payments through phones, with new payment services springing up. Tax incentives and thorough vetting were also introduced to players in the informal economy, forcing them to be transparent with their books.

However, by 2007, cash in circulation was at its highest ever, leading Riksbank to set plans in motion to introduce new bills and coins after 30 years. This didn’t happen until between 2015 and 2017.

Another propeller of the country’s cashless policy is its growing eCommerce sector; from 2010 to 2020, the number of Swedes using cash fell from 39% to 9%.

A school of thought argues that even though a sect of the Swedes is averse to getting rid of cash, many are adopting e-payment, having built trust in the government’s ability to stabilize the Swedish currency—krona.

To a large extent, how much citizens trust the government influences their acceptance of a cashless policy measure.

Swedish law says that cash is legal tender, and the government must accept it. However, as established by the Swedish Supreme Administrative Court in 2015, businesses and shops are within their rights to reject cash or credit cards under the contractual freedom between businesses and consumers.

In other words, contract laws have precedence over banking and payment laws. By implication, a storeowner insisting on cashless transactions is protected by the law and any buyer willing to patronize the store is bound by the law to agree to storeowners’ terms despite cash being considered a legal tender.

Notwithstanding, an amendment to the Swedish Act of Payment in 2021 required banks to provide access to cash services or be sanctioned because people have the right to reasonable access to cash throughout the country.

Another thing the Swedish government did was make sure the cost of using cash was more than the cost of making card payments.

Despite these attempts, some residents in rural areas, the elderly, people living with disabilities, and immigrants who only have access to cash are hurt by the no-cash policies.

The question remains, which of these countries does Nigeria’s current economy resonate with?In India’s case, cashless policy measures need to take into account the unique challenges and circumstances of the country, including factors such as the availability of technology, the level of economic development, and the preferences and concerns of the population.

For Sweden, a successful cashless policy would need to be implemented in a fair, transparent, and convenient way for all stakeholders, including individuals, businesses, and financial institutions. It would also need to address any potential security and privacy concerns.

Ultimately, the success or failure of a cashless policy will depend on a variety of factors and will require careful planning and implementation.

What sets successful nations apart from those struggling to implement cashless policies are the incentives offered to encourage mainstream adoption.

People often reject such moves because there is insufficient evidence to suggest successful implementation and, of course, a lack of trust.

Like Nigeria, after announcing the withdrawal of 500 and 1000 rupee notes, India imposed daily withdrawal limits, causing long queues around ATMs which soon ran dry. Between November 9 and December 31, 2016, the Reserve Bank of India issued 57 official circulars constantly revising the conditions for deposits and withdrawals as the government struggled to manage the fallout of the cashless policy.

Nigeria’s central bank seems to be following this path. But it is a path that puts it at odds with agency banking, which is a core part of the central bank’s financial inclusion strategy.

In Nigeria, agency banking is operated by agents who facilitate cash withdrawals and deposit with mobile POS devices.

Driven by high unemployment and poor ATM service that leads to frequent queues, agent banking and mobile POS devices have become ubiquitous in towns, cities and some rural parts of Nigeria.

By limiting daily cash withdrawals to N500, 000 weekly, the CBN’s new rule may affect whether agents will be able to access the daily float they need